Sprint: Guggenheim Cuts to Hold; Will Softbank Hamper CLWR Bid?

By Tiernan Ray

Shares of Sprint-Nextel (S) are unchanged at $7.12 after GuggenheimSecurities‘s Shing Yin cut his rating on the stock to Neutral from Buy, writing that Sprint’s bid to buy out the portion of broadband partner Clearwire (CLWR) is likely to fail to pass a Clearwire shareholder vote, and that Sprint stock may not see a higher bid despite the tug of war between Japan‘s Softbank (9984JP) and Dish Network (DISH) to buy Sprint.

Writes Yin, who actually raised his price target on Sprint to $7 from $6.50, where the shares go from here depends on “we believe further upside depends on “how this chess match progresses from here” between Dish CEO Charlie Ergen and Softbank CEO Masayoshi Son. Softbank has bid $7.30 per share for Sprint, while Dish has bid $7.14, though Dish emphasizes a greater portion of its offer is in cash than is the case with Softbank’s bid.

Separately, Sprint has bid $2.97 per share for Clearwire, and Dish came in with a higher $3.30 per share bid before offering to acquire Sprint. Clearwire shareholders are to vote on the Sprint bid on May 21st, while Sprint shareholders are to vote on the Softbank proposal on June 12th, notes Yin.

As Yin notes, a number of Clearwire shareholders are unhappy with the Sprint offer — in fact, 2.4% holder Aurelius Capital Managementon Friday sued Clearwire and Sprint to block the deal.

Yin believes Softbank has veto rights over a higher Sprint bid for Clearwire, and he notes the language in the Softbank bid:

In connection with the Clearwire Acquisition, on December 17, 2012, SoftBank and New Sprint entered into a consent and agreement with Sprint, which permitted Sprint to enter into the agreements related thereto and provided SoftBank with certain rights to information and review of certain actions which might be taken by Sprint in connection with the Clearwire Acquisition

Yin thinks that even though Softbank might want a combined Sprint-Clearwire, nevertheless Softbank might not allow Sprint to bid higher, because by throwing a wrench into Sprint’s Clearwire bid, Softbank might prevent Sprint from being as attractive to Dish as it would be with Clearwire:

So does Softbank want the Clearwire vote to succeed? Perhaps not, in our view. We think Softbank’s next move in this chess game may be to let the Clearwire vote fail on May 21. Why? Because if the Clearwire vote succeeds, that would arguably make Sprint more attractive to DISH, and we think it could cause DISH to pursue Sprint even more aggressively. That could raise the odds of a Softbank-vs.-DISH bidding war over Sprint [...] In our view, DISH may be more reluctant to pursue Sprint aggressively if there is not a clear resolution to the Clearwire situation.

Yin thinks any Softbank obstruction of the Clearwire bid might return Egen to his original focus on Cleawire:

If we are right that DISH’s real target is Clearwire, we think Mr. Ergen may decide to focus on Clearwire instead – since Clearwire would then be “in play.” In effect, by letting the Clearwire vote fail, Softbank could shift the bidding war over to Clearwire, and away from Sprint. In the end, a bidding war over Clearwire would likely be less costly than a bidding war over Sprint; and between Softbank and DISH, we still believe Softbank is likely to eventually prevail.

Clearwire shares today are down 2 cents, or 0.6%, at $3.42, while Dish shares are up 21 cents, or 0.6%, at $40.20.

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There are 4 comments

APRIL 29, 2013 7:55 P.M.

Ed B. wrote:

The Softbank purchase is a done deal.
Charlie Ergen is just trying to mix things up because he is not getting his way.
Kinda like a spoiled brat at a birthday party that he wasn't invited to.
Be nice Charlie.

APRIL 29, 2013 10:08 P.M.

jbm1 wrote:

Will politics let the humongous CLWR spectrum be controlled by an Asian company with ties to China/Huaweii?
Will anybody buy S w/o settlement of the CLWR Cl A lawsuits?
And if the assets of CLWR are worth, say, twice its debt at auction, then what if a bankruptcy?

APRIL 30, 2013 12:28 A.M.

Spokanimal wrote:

The impending failure of sprint's attempt to acquire Clearwire for the ridiculous price of $2.97 per share begins with an extraordinary intense hatred of Sprint CEO Dan Hesse on the part of Clearwire's minority shareholders.

In turn, that hatred stems from Hesse's 3-year campaign to drive Clearwire's share price into the sewer... always with the intent of essentially stealing clearwire's valuable assets from it's minority shareholders. Obviously, softbank isn't going to pay $20 billion for 70% of sprint without offering up clearwire as part of the deal for the pennies on the dollar that the $2.97 bid represents.

Clearwire's shareholders know very well what the "lightsquared gambit" was all about... it was about hammering clearwire by feigning that sprint would abandon it's spectrum-rich subsidiary... which worked just fine until sprint realized that it had overplayed it's hand and risked hurtling a bankrupt clearwire into the hands of it's bondholders... not sprint. So much for THAT attempt by Dan Hesse to "manipulate" clearwire's stock even lower that low.

I could go on and on, but suffice it to say that Dan Hesse, and his "cashable-stock option payoff" to clearwire's executives and board members (that's why they're accepting another $80 billion in horribly-dilutive loans from Sprint, Virginia) has not completely alianated clearwire's minority shareholders. Virtually every institutional holder will vote this thing down, and this thing has gone totally viral with retail shareholders. There's not much point in even CONDUCTING the May 21st meeting... it's dead.

Yin makes some pretty good points, but he's trying to make more out of this than there really is. The fact is, not all of clearwire's minority holders are dead set on seeing clearwire continue as an independent entity as Crest Financial does. They have a price they'll accept, and Ergan is somebody who could overcome the hatred of Dan Hesse and actually FIND that price and exploit it.

But Clearwire investors do NOT want to be ripped of at the hands of a crook like Dan Hesse. If sprint wants to get clearwire for a "reasonable" price that still represents good value for sprint... they're going to HAVE to push Dan Hesse out of the negotiating room to accomplish it.

Spokanimal

APRIL 30, 2013 11:58 A.M.

SyDVooh wrote:

Seems as though no one knows how to cut a takeover deal anymore. If either Ergan or Hesse really want CLWR, then one of them should offer a "sweetener" to their offer, in the form of a warrant, for either DISH or S stock. If the acquisition of CLWR adds value to either company, then everyone will be happy.

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Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.